Iran on Wednesday confirmed it had installed a second cascade to enrich uranium at a nuclear facility and would start feeding gas into the equipment this week, the official ISNA news agency reported.

"The second cascade was installed two weeks ago and this week we are going to inject it with (uranium hexafluoride UF6) gas," an official source, which was not identified, told the agency.

"Soon after the injection of the gas we will have the product of the second cascade," the official added, referring to enriched uranium.

United States and Western diplomats close to the International Atomic Energy Agency had spoken of the new centrifuge cascade being developed but until now there was uncertainty over how advanced the process was.

The announcement comes as Western countries work on a UN Security Council draft resolution that would punish Iran for its repeated refusal to halt enrichment, which the West fears could be diverted to make a nuclear bomb.

Iran has been conducting a small-scale research enrichment programme at its plant in Natanz, in the centre of the country, where it has so far been feeding the UF6 gas into a single 164-centrifuge cascade.

Enrichment is carried out in lines of centrifuges called cascades and is used to make the fuel for civilian nuclear reactors. But in highly refined form the product can serve as the raw material for atomic weapons.

Iran's refusal to obey repeated UN deadlines to halt enrichment has left it facing the prospect of UN Security Council sanctions, with Britain, France and Germany now drawing up a draft sanctions resolution to put to the world body.

The Islamic republic has already announced it has succeeded in enriching uranium to almost five percent, but this is still well off the levels that would be needed to make a nuclear bomb.

Iran insists that its nuclear programme is solely aimed at providing energy, vehemently rejecting US accusations that it is seeking nuclear weapons.

"It is clear that Iran is moving forward, full steam ahead with its nuclear programme," US State Department spokesman Sean McCormack said on Tuesday.